Question

Why debenture is known as loan capital? Explain

Answer 1

The issue of debentures implies incurring long-term indebtedness. Generally, a company issues debentures for acquiring long-term borrowings to achieve its long-run targets and growth. Like the owner’s capital, interest is also payable on the principal amount of the debenture. The interest paid is regarded as an expense for the company and is deductible under the Income Tax Act. Therefore, debentures are also known as loan capital because they are redeemable after a long period of time.